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eCommerce in India – Part 8

Hundreds of millions of dollars have flown into the sector over the past couple years at valuations that were very attractive to the entrepreneurs. The talk now is that the “mini-bubble” has burst. Consolidation is starting in the sector. Companies lucky enough to have raised substantial capital are the ones who will be the survivors and the new brands in the Indian space.

What has changed is that the increased competition has led to limited differentiation on product and price. Investing in service (logistics, payment collection) increases costs of operation. Marketing expenses continue. eCommerce is a business of scale. As such, most companies burn through cash quickly. Not many are profitable. Some are even operating at negative gross margins in efforts to get the customers.

As a result, if future rounds of funding are not forthcoming, it is rapid death for companies because it is not easy to scale back the burn. That seems to be happening in this sector. More than the consumers, it is the investors who will decide the winners.